Under a U.S. Department of Labor (DOL) rule scheduled to take effect Dec. 1, the threshold for salaried employees who are considered exempt from overtime pay will double, from $23,660 to $47,476 annually. Any employee whose annual salary falls below that threshold must receive overtime pay (time and one-half) for every hour of work in excess of 40 hours a week. While that may mean more dollars in the pockets of an estimated 4.2 million salaried workers across the nation, it also means exasperation for employers, especially among the small businesses and nonprofits that provide the backbone of our economy. For those employers – even those who agree that an adjustment might be needed – the new rule is too much, too soon.
In May, the DOL published a set of guidelines for private employers on the changes to the so-called “white collar” exemptions under the overtime rule. The guidelines offer some suggestions for operations whose employees, by necessity, work outside of the standard 9-to-5, Monday-through-Friday work week. Employers are allowed to reorganize workload distributions or adjust employee schedules to manage overtime hours. For example, work assignments that are predictable could be assigned at the beginning of a workweek. The employer then could consider adjusting work schedules to align with when most of the work takes place, so that employees will not work more than 40 hours each week.
Employers also can lower an employee’s base wage to adjust for overtime so that the total amount paid remains largely the same. But employee hours worked must be recorded, and overtime compensation must be paid according to the actual number of hours worked each week.
The impact of the new rule clearly will be felt here in Maine, where average salaries statewide fall well below the new overtime threshold. David Clough, state director of the National Federation of Independent Business, believes a DOL estimate that 16,000 workers in Maine will be affected is too low. He may very well be right. Figures for 2014 – the latest available – show that the average Maine salary across all industries was $40,456. Here in Hancock County, that average is even lower at $35,880. For small businesses with modest profits, that means the very real likelihood of staff reductions or reductions in benefits in order to meet increased payroll costs.
It’s surprising, given the far-reaching effect of the new overtime rule, that it has not become a significant public or political issue. With implementation now just a few months away, there’s been little or no public discussion of the rule’s impact on the country’s business community in national media, which is breathlessly reporting on every eyebrow twitch among politicians.
But that may be changing.
Employers may face higher payrolls or reductions in staff, and workers may face the possibility of having hours, base wages or benefits reduced, or layoffs. That reality has captured the attention of some members of Congress, including Maine Sens. Angus King and Susan Collins.
King has asked the Office of Management and Budget to conduct a “fair and thorough review” of the new rule to ensure that the Department of Labor has conducted a comprehensive analysis of the rule’s impact on small businesses.” He would favor regional overtime standards that reflect geographic and economic conditions and a tiered implementation timeline.
A group of congressional Democrats is proposing just that with a bill to phase in the overtime threshold over three years, with a 50 percent increase this year to $35,984 and subsequent increases until Dec. 1, 2019.
Collins would go further. She is co-sponsoring legislation that would nullify the rule and require the DOL to take into account the impact of any future rule changes on industries and organizations in various regions with different costs of living.
Maine employers, and their counterparts across the country, would be well advised to lend their support to those legislative efforts. Nobody argues that workers are not entitled to fair compensation. But any government edict should take into consideration the financial pressure it imposes on businesses and organizations already struggling to survive. As is the case with so many well-intentioned rules, the new DOL overtime mandate contains negative, unintended consequences for the very workers it seeks to help.